Ecuador (08/02)

GeographyArea: 256,370 sq. km; about the size of Colorado.Cities: Capital--Quito (pop. 1.4 million). Other cities--Guayaquil (2.0 million).Terrain: Jungle east of the Andes, a rich agricultural coastal plain west of the Andes, high-elevation valleys through the mountainous center of the country and an archipelago of volcanic islands in the Pacific Ocean.Climate: Varied, mild year-round in the mountain valleys; hot and humid in coastal and Amazonian jungle lowlands.

PEOPLEEcuador's population is ethnically mixed. The largest ethnic groups are indigenous and mestizo (mixed Indian-Caucasian). Although Ecuadorians were heavily concentrated in the mountainous central highland region a few decades ago, today's population is divided about equally between that area and the coastal lowlands. Migration toward cities--particularly larger cities--in all regions has increased the urban population to about 55%. Due to the recent economic crisis, more than 600,000 Ecuadorians emigrated to the U.S. and Europe from 2000 to 2001. The tropical forest region to the east of the mountains remains sparsely populated and contains only about 3% of the population.

The public education system is tuition-free, and attendance is mandatory from ages 6 to 14. In practice, however, many children drop out before age 15, and, in rural areas only about one-third complete sixth grade. The government is striving to create better programs for the rural and urban poor, especially in technical and occupational training. In recent years, it also has been successful in reducing illiteracy. Enrollment in primary schools has been increasing at an annual rate of 4.4%--faster than the population growth rate. According to the 1979 constitution, the central government must allocate at least 30% of its revenue to education; in practice, however, it allots a much smaller percentage. Public universities have an open admissions policy. In recent years, however, large increases in the student population, budget difficulties, and extreme politicization of the university system have led to a decline in academic standards.

HISTORYAdvanced indigenous cultures flourished in Ecuador long before the area was conquered by the Inca empire in the 15th century. In 1534, the Spanish arrived and defeated the Inca armies, and Spanish colonists became the new elite. The indigenous population was decimated by disease in the first decades of Spanish rule--a time when the natives also were forced into the "encomienda" labor system for Spanish landlords. In 1563, Quito became the seat of a royal "audiencia" (administrative district) of Spain.

After independence forces defeated the royalist army in 1822, Ecuador joined Simon Bolivar's Republic of Gran Colombia, only to become a separate republic in 1830. The 19th century was marked by instability, with a rapid succession of rulers. The conservative Gabriel Garcia Moreno unified the country in the 1860s with the support of the Catholic Church. In the late 1800s, world demand for cocoa tied the economy to commodity exports and led to migrations from the highlands to the agricultural frontier on the coast.

A coastal-based liberal revolution in 1895 under Eloy Alfaro reduced the power of the clergy and opened the way for capitalist development. The end of the cocoa boom produced renewed political instability and a military coup in 1925. The 1930s and 1940s were marked by populist politicians such as five-time president Jose Velasco Ibarra. In January 1942, Ecuador signed the Rio Protocol to end a brief war with Peru the year before. Ecuador agreed to a border that conceded to Peru much territory Ecuador previously had claimed in the Amazon. After World War II, a recovery in the market for agricultural commodities and the growth of the banana industry helped restore prosperity and political peace. From 1948-60, three presidents--beginning with Galo Plaza--were freely elected and completed their terms.

Recession and popular unrest led to a return to populist politics and domestic military interventions in the 1960s, while foreign companies developed oil resources in the Ecuadorian Amazon. In 1972, a nationalist military regime seized power and used the new oil wealth and foreign borrowing to pay for a program of industrialization, land reform, and subsidies for urban consumers. With the oil boom fading, Ecuador returned to democracy in 1979, but by 1982, the government faced an economic crisis, characterized by inflation, budget deficits, a falling currency, mounting debt service, and uncompetitive industries.

The 1984 presidential elections were narrowly won by Leon Febres-Cordero of the Social Christian Party (PSC). During the first years of his administration, Febres-Cordero introduced free-market economic policies, took strong stands against drug trafficking and terrorism, and pursued close relations with the United States. His tenure was marred by bitter wrangling with other branches of government and his own brief kidnapping by elements of the military. A devastating earthquake in March 1987 interrupted oil exports and worsened the country's economic problems.

Rodrigo Borja of the Democratic Left (ID) party won the presidency in 1988. His government was committed to improving human rights protection and carried out some reforms, notably an opening of Ecuador to foreign trade. The Borja government concluded an accord leading to the disbanding of the small terrorist group, "Alfaro Lives." However, continuing economic problems undermined the popularity of the ID, and opposition parties gained control of congress in 1990.

In 1992, Sixto Duran-Ballen won in his third run for the presidency. His government succeeded in pushing a limited number of modernization initiatives through Congress. Duran-Ballen's vice president, Alberto Dahik, was the architect of the administration's economic policies, but in 1995, Dahik fled the country to avoid prosecution on corruption charges following a heated political battle with the opposition. A war with Peru erupted in January-February 1995 in a small, remote region where the boundary prescribed by the 1942 Rio Protocol was in dispute.

Abdala Bucaram, from the Guayaquil-based Ecuadorian Roldosista Party (PRE), won the presidency in 1996 on a platform that promised populist economic and social policies and the breaking of what Bucaram termed as the power of the nation's oligarchy. During his short term of office, Bucaram's administration drew criticism for corruption. Bucaram was deposed by the Congress in February 1997 on grounds of alleged mental incompetence. In his place, Congress named interim President Fabian Alarcon, who had been president of Congress and head of the small Radical Alfarist Front party. Alarcon's interim presidency was endorsed by a May 1997 popular referendum.

Congressional and first-round presidential elections were held on May 31, 1998. No presidential candidate obtained a majority, so a run-off election between the top two candidates--Quito Mayor Jamil Mahuad of the Popular Democracy party and Alvaro Noboa of the Ecuadorian Roldosista Party (PRE)--was held on July 12, 1998. Mahuad won by a narrow margin. He took office on August 10, 1998. On the same day, Ecuador's new constitution came into effect.

Mahuad concluded a well-received peace with Peru on October 26, 1998, but increasing economic, fiscal, and financial difficulties drove his popularity steadily lower. On January 21, 2000, during demonstrations in Quito by indigenous groups, the military and police refused to enforce public order. Demonstrators entered the National Assembly building and declared a three-person "junta" in charge of the country. Field-grade military officers declared their support for the concept. During a night of confusion and negotiations, President Mahuad was obliged to flee the presidential palace. Vice President Gustavo Noboa took charge; Mahuad went on national television in the morning to endorse Noboa as his successor. Congress met in emergency session in Guayaquil the same day, January 22, and ratified Noboa as President of the Republic in constitutional succession to Mahuad.

Noboa is not a member of a political party and has depended on several parties in Congress to pass legislation. He has faced the task of sustaining political support for reform in the face of social tension as the Government attempted to restore economic growth. Noboa's term ends January 15, 2003. His successor should be elected in elections scheduled for October and November 2002.

GOVERNMENTThe constitution provides for concurrent 4-year terms of office for the president, vice president, and members of Congress. Presidents may be re-elected after an intervening term, while legislators may be re-elected immediately.

The executive branch includes 15 ministries. Provincial governors and councilors, like mayors and aldermen and parish boards, are directly elected. Congress meets throughout the year except for recess in July and December. There are twenty 7-member congressional committees. Justices of the Supreme Court are appointed by the Congress for indefinite terms.

Ecuador maintains an embassy in the United States at 2535 - 15th Street NW, Washington, DC 20009 (tel. 202-234-7200) and consulates in Chicago, Dallas, Houston, Los Angeles, Miami, New Orleans, New York, and San Francisco.

POLITICAL CONDITIONSEcuador's political parties have historically been small, loose organizations that depended more on populist, often charismatic, leaders to retain support than on programs or ideology. Frequent internal splits have produced extreme factionalism. However, a pattern has emerged in which administrations from the center-left alternate with those from the center-right. Although Ecuador's political elite is highly factionalized along regional, ideological, and personal lines, a strong desire for consensus on major issues often leads to compromise. Opposition forces in Congress are loosely organized, but historically they often unite to block the administration's initiatives and to remove cabinet ministers.

Constitutional changes enacted by a specially elected National Constitutional Assembly in 1998 took effect on August 10, 1998. The new constitution strengthens the executive branch by eliminating mid-term congressional elections and by circumscribing Congress' power to challenge cabinet ministers. Party discipline is traditionally weak, and routinely many deputies switch allegiance during each Congress. However, after the new Constitution took effect, the Congress passed a code of ethics which imposes penalties on members who defy their party leadership on key votes.

Beginning with the 1996 election, the indigenous population abandoned its traditional policy of shunning the official political system and participated actively. The indigenous population has established itself as a significant force in Ecuadorian politics, as shown by the selection of indigenous representative Nina Pacari, who led the indigenous political party, Pachakutik, as second vice president of the 1998 Congress. The next presidential and congressional elections are currently scheduled for October 20, 2002 (first round) and November 24, 2002 (second round).

ECONOMYThe Ecuadorian economy is based on petroleum production and exports of bananas, shrimp, and other primary agricultural products. In 2001, oil accounted for about 27% of public sector revenue and 40% of export earnings. Ecuador is the world's largest exporter of bananas ($846 million in 2001) and a major exporter of shrimp ($280 million in 2001). Exports of nontraditional products such as flowers ($229 million in 2001) and canned tuna ($268 million in 2001) have grown in recent years. Industry is largely oriented to servicing the domestic market.

Deteriorating economic performance in 1997-98 culminated in a severe economic and financial crisis in 1999. The crisis was precipitated by a number of external shocks, including the El Nino weather phenomenon in 1997, a sharp drop in global oil prices in 1997-98, and international emerging market instability in 1997-98. These factors highlighted the Government of Ecuador's unsustainable economic policy mix of large fiscal deficits and expansionary money policy and resulted in an 7.3% contraction of GDP, annual year-on-year inflation of 52.2%, and a 65% devaluation of the national currency in 1999.

On January 9, 2000, the administration of President Jamil Mahuad announced its intention to adopt the U.S. dollar as the official currency of Ecuador to address the ongoing economic crisis. Subsequent protest led to the removal of Mahuad from office and the elevation of Vice President Gustavo Noboa to the presidency.

The Noboa government confirmed its commitment to dollarize as the centerpiece of its economic recovery strategy, successfully completing the transition from sucres to dollars in 2001. Following the completion of a one-year stand-by program with the International Monetary Fund (IMF) in December 2001, Ecuador is currently negotiating with the IMF to obtain a new stand-by agreement.

Buoyed by higher oil prices, the Ecuadorian economy experienced a modest recovery in 2000-01, with GDP rising 2.3% in 2000 and 5.4% in 2001. Inflation fell from an annual rate of 96.1% in 2000 to an annual rate of 22.4% in 2001, and continues to fall in 2002. Monthly inflation for the January to May 2002 period was 6.2%. Despite recent gains, 70% of the population lives below the poverty line, more than double the rate of 5 years ago.

The completion of the second Transandean Oil Pipeline (OCP in Spanish) in 2003 will enable Ecuador to expand oil exports. The project will bring in an estimated 56,000 new jobs and over $1.5 billion in investment. Once it becomes operational in the second half of 2003, it is expected to generate as much as $730 million in annual royalties.

FOREIGN RELATIONSEcuador always has placed great emphasis on multilateral approaches to international problems. Ecuador is a member of the United Nations (and most of its specialized agencies) and the Organization of American States and also is a member of many regional groups, including the Rio Group, the Latin American Economic System, the Latin American Energy Organization, the Latin American Integration Association, and the Andean Pact. Ecuador currently holds the chair of the Free Trade Area of the Americas (FTAA) negotiations, and will host the next round of Ministerial level talks in October 2002.

In October 1998, Ecuador and Peru reached a peace agreement to settle their border differences, which had festered since the signing of the 1942 Rio Protocol. This longrunning border dispute occasionally erupted into armed hostility along the undemarcated sections, with the last conflict occurring in 1995. The U.S. Government, as one of the four guarantor nations, played an important role in bringing the conflict to an end. A peace agreement brokered by the four Guarantors of the Rio Protocol (Argentina, Brazil, Chile, and the United States) in February 1995 led to the cessation of hostilities and the establishment of the Military Observers Mission to Ecuador-Peru (MOMEP) to monitor the zone. In addition to helping broker the peace accord, the U.S. has been active in demining the former area of conflict and supporting welfare and economic projects in the border area.

The ongoing conflict in Colombia and security along the 450-mile-long northern border is an important issue in Ecuador's foreign relations with Colombia. The instability of border areas and frequent encroachments of Colombian guerillas into Ecuadorian territory has led the Ecuadorian army to deploy more troops to the region. Although Ecuadorian officials have stated that Colombian guerrilla activity will not be tolerated on the Ecuadorian side of the border, guerrilla bands have been known to intimidate the local population, demanding extortion payments and practicing vigilante justice. The close proximity of the border to northern oil fields also has resulted in kidnappings of foreign oil workers by Colombian-based criminals.

U.S.-ECUADORIAN RELATIONSThe United States and Ecuador have maintained close ties based on mutual interests in maintaining democratic institutions; combating narcotrafficking; building trade, investment, and financial ties; cooperating in fostering Ecuador's economic development; and participating in inter-American organizations. Ties are further strengthened by the presence of an estimated one million Ecuadorians living in the United States and by 150,000 U.S. citizens visiting Ecuador annually, and by approximately 17,000 U.S. citizens residing in Ecuador. More than 100 U.S. companies are doing business in Ecuador.

The United States assists Ecuador's economic development directly through the Agency for International Development (USAID) and through multilateral organizations such as the Inter-American Development Bank and the World Bank. In addition, the U.S. Peace Corps operates a sizable program in Ecuador. Total U.S. assistance to Ecuador exceeded $60 million in 2001, and is projected to surpass $65 million in 2002.

The United States is Ecuador's principal trading partner, with two-way trade exceeding $2.2 billion in 2001. Ecuador exported $1.78 billion of products to the U.S. in 2001, accounting for 38% of its total exports. For 10 years Ecuador benefited from duty-free entry for certain of its exports under the Andean Trade Preferences Act (ATPA), which expired in December 2001. The U.S. Congress is considering its renewal.

Both nations are signatories of the Rio Treaty of 1947, the Western Hemisphere's regional mutual security treaty. Although the State Department's 2001 Patterns of Global Terrorism Report identified problems with money laundering, border controls, and illegal alien immigration, Ecuador shares U.S. concerns over narcotrafficking and international terrorism and has energetically condemned terrorist actions, whether directed against government officials or private citizens. The government has maintained Ecuador virtually free of coca production since the mid-1980s and is working to combat money laundering and the transshipment of drugs and chemicals essential to the processing of cocaine.

Ecuador and the U.S. agreed in 1999 to a 10-year arrangement whereby U.S. military surveillance aircraft could use the airbase at Manta, Ecuador as a Forward Operating Location to detect drug trafficking flights through the region.

Ecuador claims a 320-kilometer-wide (200-mi.) territorial sea. The United States, in contrast, claims a 12 mile-boundary and jurisdiction for the management of coastal fisheries up to 320 kilometers (200 mi.) from its coast but excludes highly migratory species. Although successive Ecuadorian governments have declared a willingness to explore possible solutions to this issue, the U.S and Ecuador have yet to resolve fundamental differences concerning the recognition of territorial waters.

The U.S. Embassy in Ecuador is located at Avenida Patria 120, Quito (tel. (593)(2) 256-2890/256-1634). The Consulate General is at 9 de Octubre and Garcia Moreno, Guayaquil (tel. (593)(4) 232-3570). Consular Agent for the Galapagos (Jack Nelson) is in Puerto Ayora at (593) 5 526-330 or (593) 5 526-296.

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